Corning Has It All: Value, Growth, And Dividend Growth

Summary

Corning supplies essential products that enable modern telecommunications and technologies.

Its optical fiber business is firing on all cylinders and is in the early innings of a long growth runway.

Meanwhile, it maintains a strong balance sheet and pays a well-covered and growing dividend.

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shulz/E+ via Getty Images The tech space is filled with quality but expensive names, despite the recent market sell-off. This could be a turnoff for value investors who are more conservatively minded when it comes to putting their hard-earned capital to work.

This brings me to Corning ( GLW ), which supplies mission-critical materials that enables e-commerce, telecommunications, and other technologies that we take for granted in modern life.

At the same time, GLW trades at a far more reasonable valuation than many tech companies, and comes with strong growth prospects. In this article, I highlight what makes GLW a great buy in the currently frothy market, so let’s get started. Corning Has It All: Value, Growth, And Dividend Growth

Corning has been around for 170 years, and is a leading global innovator of materials science. It specializes in the production of glass, ceramics, and optical fiber, the latter of which makes GLW a crucial partner to the technology industry. Corning has a leading market share in many end markets, and its product uses range from flat-panel monitor displays to gasoline particulate filters in cars, to optical fiber for broadband access.

Corning benefits from its position as the largest player in its space. This is reflected by its sector leading profitability. Corning generates sector leading EBITDA and Net Income margins of 27% and 12%, respectively, sitting well ahead of the sector medians of 14% and 6%. As seen below, this has helped the enterprise to earn an A- grade for profitability compared to its peers. (Source: Seeking Alpha)

GLW continues to demonstrate strong growth, with sales rising by 21% YoY in the third quarter, to $3.6B. This was driven by acceleration in the optical fiber business as well as favorable pricing for its display glass. Optical fiber continues to benefit from large-scale deployment of 5G by the major telecoms, with 24% sales growth compared to last year.

Not everything is rosy, however, as GLW saw weakness in the automotive segment due to chip and component shortages. Automotive production last quarter is estimated to be down nearly 20% YoY and down 9% sequentially during the third quarter. This could be a continued headwind in the near-term, as supply chain issues in this sector is expected to persist.

Looking forward, I see the long-term growth thesis for GLW as being firmly in place. This is supported by very strong broadband usage, which was up by 32% in September on a 2-year stacked basis, and up by 9% compared to September of 2020. I find this to be rather impressive, as September of 2020 is a difficult comparison considering the high internet usage last year due to lockdown measures that were in place.

GLW should continue to benefit from this trend, as 5G subscriptions have now grown to almost 500 million, and as applications are increasingly moving to the cloud. Global data creation is expected to grow at a 23% CAGR from now through 2025. This bodes well for GLW, as it essentially provides the pipes to make data transfer happen.

As noted by the CEO of Corning, AT&T ( T ) plans to deploy fiber at scale, and is working towards passing 5 million homes per year, with fiber infrastructure being central to the growth of broadband reach for consumers and businesses. There appears to be plenty of growth runway, as noted by the Chief Strategy Officer of GLW during this month’s technology conference : We believe the industry is in the early innings of major capital deployments across each of these areas. New applications are driving network demand to an all-time high. In response, network and data center operators are expanding network capacity, capability and access. Additionally, governments around the world are announcing plans to extend the reach of broadband as network access is increasingly viewed as a basic human right. In the United States, the Federal Communications Commission has authorized more than one billion dollars to winning bidders of the rural digital opportunity fund with the acting commission chair women recently saying, broadband is an essential service. Meanwhile, GLW maintains a strong BBB+ rated balance sheet, with a net debt to EBITDA […]

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